This Week’s Economic Update, October 9, 2023

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2023 seems to be slipping by way too fast.  The third quarter is done, the baseball post season is in full swing, the Vikings are out of the playoff picture and Christmas is now just 76 days away.   Hopefully the leaves are approaching the color peak where you live.  Get out to an apple orchard and enjoy the Fall.

We may be seeing a historic collapse in the demand for oil.  At the end of July, I noted that crude oil supplies in the US fell initially by 17 million barrels in one week.  A drop of this magnitude has not occurred in the past 50 years.  Since the end of July, the depletion of our crude oil supplies now amounts to 42 million barrels.  This level of decline has never happened before.  Based on this historic drop, one would expect a flow through depletion of both gasoline and distillate supplies.  In fact, over the past two months, gasoline supplies have increased by 7,902 thousand barrels.  Distillates have increased by 1,712 thousand barrels.  During this same period, refinery runs for both gasoline and distillates have been contracting.  To be clear, we are not making up for the decline of our crude oil stocks by importing the commodity.  We have cut our imports by 1,300 million barrels.  The number clearly indicates our use of fossil fuels is declining as we drive less and use alternative sources for energy generation.  This is one reason gas prices have moderated recently.  Let’s see if it continues.

The ISM reports provided some confusing results.  The manufacturing report unexpectedly rose to 49 from 47.7 in August.  Embedded in the report, the upward movement was the result of clearing up the back log of orders.  To be clear, 49 reflects a slight contraction in the sector. New orders fell in September, but as manufacturing has plenty of capacity, they were able to deplete the backlog to move close to a break-even level.  The expectation is that October will be problematic due to lower new orders as well as the UAW strike.

The services report noted a small move from 54.5 in August to 53.6 in September.  Within the report we noted that employment was still expanding at 53.4.  Thirteen of the service industries reported growth and five industries contracted.  The strongest industries were real estate and retail.  This is surprising based on the high interest rates and even higher prices surrounding rent and home ownership.  Agriculture, forestry and entertainment were key contracting sectors.  At the same time employment across the service industries continues to expand.  Most of the comments by leaders in the survey indicate an optimistic outlook for the fourth quarter.

No one is interested in trying to catch a falling knife.  That might be what is happening in the job market right now.  Beginning in 2020 we saw a massive move of workers to the sidelines.  The liquidity provided by the government assisted in this shift.  As the economy improved and required more workers, wages improved and pulled some on the sideline back into work roles.  However, many anticipated wages would continue to rise and stayed at home.

The most recent numbers on the job front show that wages have peaked and are now stabilizing. 336,000 new jobs in September was well above any expectations. However, deep in the report, the tale is not so impressive. The largest growth areas are in the lowest paid positions.  Hospitality and Food Service produced the most jobs in September. Higher wage industries were on the sideline for new hires. That means, those getting back into the job market are taking less in their starting wage or are untrained and can not demand a premium.  In essence, the new hires are catching the falling knife.  Had they removed themselves from the couch a year ago, they would have made more and likely been better off.  Have a great week.



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